Iowa revenue projected to decline in upcoming years
Republicans remain optimistic about recent tax cuts
Domes at the Iowa Capitol. (Photo by Kathie Obradovich/Iowa Capital Dispatch)
Iowa’s revenue will decline in upcoming fiscal years, state experts projected Thursday.
The Revenue Estimating Conference (REC) meets multiple times each year to forecast how much money Iowa will collect. The REC convened Thursday, its first meeting after Gov. Kim Reynolds signed a significant income and corporate tax cut into law.
The REC projects the state will bring in net receipts of $9.17 billion in fiscal year 2022, which ends in June. That would be an increase of 4.2% over the previous year.
But the state’s revenue is expected to decrease in upcoming years, due in part to the tax cut taking effect. Members of the REC also highlighted a broad collection of economic uncertainties facing Iowa and the U.S., including war in Ukraine, labor and supply chain shortages and inflation.
“Conclusions regarding Iowa’s economic future are challenging to arrive at,” said Kraig Paulsen, director of the Iowa Department of Revenue. “Conditions continue to be conflicting and noisy.”
Under the latest projections, Iowa will bring in $9.16 billion in fiscal year 2023, a 0.2% decrease. Paulsen estimated a $236 million decrease due to tax cuts in 2023, when the first provisions of the bill go into effect.
Fiscal year 2024 will see an even larger drop, with predicted net receipts of $8.96 billion, a 2.1% decrease. Paulsen said $561 million of that decrease will come from tax cuts.
Although the state revenues won’t keep growing in the next few years, they’re still projected to be higher than pre-pandemic totals. In fiscal year 2019, Iowa’s net receipts were $7.86 billion – more than a billion lower than the projection for fiscal year 2024.
Paulsen said the state remains in “an extremely, extremely strong financial position” despite the projected decline in revenue. He pointed to Republican budget targets for fiscal year 2023: Reynolds and House and Senate leaders proposed budgets that leave about 10% of the state revenue untouched. They plan to spend about $8.2 billion of the $9 billion available.
Republicans have said repeatedly that the state is over-collecting, prompting the need for tax cuts.
“(W)ith the new tax law of a flat and fair 3.9% individual tax rate by 2026, and eliminating the state income tax on retirements, among other tax reform, Iowans will see more money in their pockets and not in the hands of the government,” Reynolds said in a statement Thursday.
Democrats disagree. Leaders in the minority party proposed using excess state revenue to channel additional funding into education and other priorities.
Senate Minority Leader Zach Wahls tweeted that the REC estimates show the tax cut will benefit wealthy Iowans “while resulting in likely future budget cuts for public schools, law enforcement agencies, & our health care system.”
Paulsen, who was appointed by Reynolds, did not anticipate the declining state revenue would result in budget cuts.
“I don’t foresee cuts to any services… In the foreseeable future, no, I really don’t see any of those problems,” Paulsen said.
House Speaker Pat Grassley pointed to the “huge ending balance” and the full taxpayer relief fund as buffers if revenue growth “doesn’t necessarily get to where we need it.”
“We implemented (the tax bill) over a few years and have those additional resources around,” he said. “If there is something we don’t foresee, we have built that in moving forward.”
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